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Why Sovereign Wealth Funds Love Real Estate

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Despite Norway’s sovereign wealth fund having a hard time finding suitable properties in Tokyo and in other core Asian cities, sovereign investors in the aggregate have steadily put capital to work in real estate. Even micro sovereign funds like the one owned by the Republic of Nauru, has ownership in Houston office real estate.

The low-yield environment has been a defining factor on why sovereign funds invest directly into real estate or property funds. The decade-long subtle manipulation of interest rates to stave off a global depression has forced cash-rich sovereign funds to park money into these concrete towers in central business districts. These mega institutional investors, some smaller in assets, continue to seek out experienced real estate partners to deposit their capital in niche deals. Whether its Gulf funds like the Qatar Investment Authority involved with the Empire State Building or Hudson Yards, or the Norway Government Pension Fund Global’s all-encompassing European logistics partnership, the demand for suitable institutional real estate in developed market appears to remain valid.

According to data from the Sovereign Wealth Fund Transaction Database, which tracks direct transactions made by sovereign funds, pensions and other public funds, wealth funds directly invested a staggering US$ 31.2 billion into the real estate sector versus US$ 12.3 billion in 2011. This stark contrast demonstrates three important points. First, more wealth funds are going direct or participating in co-investments. This means sovereign investors are seeking partners whether they are real estate firms, developers, pensions, life insurance companies, real estate investment trusts or wealthy family offices. For example, the GIC had formed a joint venture with affiliates of Boston-based Beacon Capital Partners, LLC to swoop up a portfolio of Washington D.C. metro properties that included the Lafayette Center complex.

California Love

Sovereign wealth is attracted to the Golden State over its diverse terrain, demographics, entertainment industry and being a global hub for innovation (San Francisco Bay Area). The Qatar Investment Authority (QIA) has been aggressive in wanting to invest in California institutional real estate. The QIA wanted to outright acquire a portfolio of offices owned by The Blackstone Group, in which the private equity firm became the owner in part of its 2007 acquisition of Equity Office Properties Trust. The QIA ended up partnering with Douglas Emmett, Inc., a real estate investment trust, to acquire these office properties once they hit the market such as 12100 Wilshire Boulevard, 233 Wilshire Boulevard and 1299 Ocean Avenue.

Going into 2017, it appears wealth funds continue to seek out high-quality real estate assets to help diversify their portfolios.

Student Housing and the Resiliency of the Education Sector

Hotels and resorts can be corrosive investments in downward economies, while the U.S. education sector has been resilient, even during the global financial crisis back in 2008. Some sovereign funds have found success in student housing. GIC Private Limited has constructed a portfolio of student housing in Australia, the United Kingdom and the United States, betting on ever-growing education sector. In March 2017, the GIC entered into a venture with the Canada Pension Plan Investment Board (CPPIB) and The Scion Group LLC, to invest and oversee a massive portfolio of student housing assets in the United States. The GIC also has a U.K. student housing venture with Unite Group Plc.

Going into 2017, it appears wealth funds continue to seek out high-quality real estate assets to help diversify their portfolios. The excessive demand from sovereign wealth funds and other real estate players have caused many pensions and real estate private equity shops to be net sellers so far in 2017. This recycling of capital has been a boon for real estate investment firms.

Saudi Arabia Sends Second Installment of Aid to Pakistan

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On December 14, 2018, Pakistan received its second installment of the US$ 3 billion in aid promised from Saudi Arabia on October 23, 2018. The US$ 1 billion given on December 14th boosted the foreign reserves of the State Bank of Pakistan, which went from US$ 7.2 billion to US$ 8.2 billion. The first installment was given on November 23, 2018. The last installment is expected to occur in January 2019.

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White House Nominates Heath Tarbert for CFTC Chairman

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The White House announced Heath P. Tarbert will be nominated to serve as Commissioner and Chairman of the Commodity Futures Trading Commission (CFTC). Tarbert currently serves as Assistant Secretary for International Markets at the U.S. Treasury Department. Before joining the U.S. Treasury, Tarbert was a Partner at law firm Allen & Overy. Tarbert was confirmed by the U.S. Senate for his current Treasury post at 87 (yes) to 8 (no).

Upon Senate confirmation, Tarbert’s CFTC term would start on April 14, 2019 and last for five years. Tarbert is taking over from J. Christopher Giancarlo whose term ends in April 2019. Tarbert will need a U.S. Senate confirmation to take the head CFTC post.

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KIA Could Sell Stake in North Sea Energy Business

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The Kuwait Investment Authority (KIA), through its unit Wren House Investment Management, is nearing a deal to sell a 40% stake in its North Sea energy business to JPMorgan Asset Management. In July 2018, KIA closed on a deal to acquire oil and gas pipeline firm North Sea Midstream Partners from ArcLight Capital.

More details to follow –

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